Commanding Heights Essay

Topics: Communism, Soviet Union, Economics Pages: 19 (7534 words) Published: June 4, 2012
Commanding Heights documentary notes

Notes meant to amplify the documentary’s points are shown in square brackets. [ ]

Episode 1: The Battle of Ideas

Friedrich Hayek and John Maynard Keynes were contemporaries and economists with rival views. Their two schools of thought dominated Western economic theory in the 20th century. Each had their period of dominance over the mainstream. Hayek was a believer in free markets whereas Keynes believed in strong government regulation of markets. Lenin opposed international trade and only wanted the USSR to trade with fellow Communist nations. He was therefore against the “global economy.” Keynes was a prominent economic advisor to the British government during and after WWI. He strongly opposed the Treaty of Versailles terms that forced Germany to make ruinous war reparations to the Allies because he saw it would destroy their economy, which in turn would lead to sociopolitical instability. During this period, Hayek became a central member of the “Austrian school” of economics. This was a small group of free market economists that formed in Vienna after WWI. They were marginalized during this period. Lenin’s hardcore Communist policies were a disaster in the USSR: Food production and industrial output virtually collapsed and the county started falling apart. He had to abandon the most extreme Communist practices early on because they just didn’t work in real life. Stalin introduced the economic practice of central planning to the USSR. As Hayek predicted, German hyperinflation after WWI completely destroyed the value of all personal bank accounts and bonds held by average Germans. The hard-earned savings of millions of middle- and working-class Germans were wiped out. The German mainstream became outraged and desperate, and they blamed the democratic Weimar government for the problems and became open to extremist alternatives, such as Communism and Nazism. [In Mein Kampf, Hitler cited broad-based anger over German hyperinflation as one of the key enablers behind his rise to power.] In retrospect, the U.S. stock market was in a classic bubble leading up to the 1929 Crash. Of special note were radio company stocks, which can be thought of the as “tech stocks” or “dotcom stocks” of the 1920’s: As soon as a radio company went public, speculative investors bid its stock price up to absurd levels that were totally disconnected from the company’s real-world profitability and long-term business potential. U.S. banks had invested their patrons’ deposits in the stock market so they could earn the biggest returns on their money. When the market crashed, much of the banks’ money therefore evaporated. Average people became afraid that the banks would shut down as a result, taking all their savings with them, so they scrambled to go to their banks and withdraw all their cash. Thus, “runs” on banks happened. Between the stock market losses and average people closing down their accounts, many banks basically ran out of money and went out of business, and the personal savings of millions of Americans were destroyed, as was the case in Germany. FDR imposed heavy regulation on the U.S. economy to finally end the violent boom-bust cycles that had characterized it for decades and now culminated with the Great Depression. During the Great Depression, the economic activity in every country became very low: Consumers were too poor and too scared of losing their remaining money to buy goods or services. Since no one was buying anything anymore, many businesses shut down or had to fire workers in order to save money. Tens of millions of workers were laid off as a result and lost their income and hence money. These laid off workers were also consumers. Consumers were too poor and too scared of losing their remaining money to buy goods or services. Et cetera. Each country became locked into a disastrous cycle where neither consumers nor businesses had the money or will to “break out” of the...
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